The Music Goes on and on

[safetyfirst]

Can i assume that NOL is in a similar situation if it continues to bleed quarter after quarter?

[BlueKelah]

so long U.S. fed tapers down the stimulus, many companies will go under,

[Temperament]

Can i assume that NOL is in a similar situation if it continues to bleed quarter after quarter?

Possible! But will it be under SGX's "Loss making observation list" first?

[touzi]

so long U.S. fed tapers down the stimulus, many companies will go under,

Can you share with us what are some of these companies?

BTW, it is called "taper" for a reason.

[tanjm]

As I understand it, The FED does not directly influence rates used as benchmarks for loans such as 3M Libor.

In this case I believe the taper involves easing off on purchases of long dated treasury notes. That's not quite the same as saying 3M Libor (which can be affected by short dated T bills) will rise. If the FED wanted to impact Libor, they would focus on their short dated T Bill issuance. I don't think I see any indications about that.

If the Fed eases off on long dated treasuries, this has a more direct impact on mortgages for instance.

[greengiraffe]

Fed ramping up 'exit strategy' talk
DOW JONES NEWSWIRES MAY 22, 2014 4:45AM

US Federal Reserve officials turned their attention to longer-run issues at their April policy meeting, while concluding that their outlook for a gradually improving economy hadn't changed much in the previous weeks and warranted no change in policy.

They spent considerable time discussing how to manage interest rates when they eventually start to raise credit costs, but came to no conclusion on the matter, according to minutes of the April 29-30 meeting, which were released today with their regular three-week lag.

Moreover, they spoke at some length on an issue that has nagged at them for years -- how to better communicate their thinking on the outlook for interest rates to the public.

Some wanted the Fed to more clearly explain why officials believed interest rates can stay low even as unemployment falls. Others wanted to provide more clarity on how long the Fed will keep its large portfolio of securities holdings. On those issues, too, they came to no new conclusions.

"In their discussion of the economic situation and the outlook, meeting participants generally indicated that their assessment of the economic outlook had not changed materially since the March meeting," the minutes said.

Public discussion of the Fed's "exit strategy" from low interest rates has heated up in recent weeks. William Dudley, president of the Federal Reserve Bank of New York, discussed the issue at length in a speech in New York on Tuesday.

The minutes showed the issue got a lengthy airing at the April meeting, with presentations from staff on the central bank's options, but the main conclusion was that officials need to keep testing their tools.

At the centre of this debate: $US4.3 trillion of securities held by the Fed and $US2.6 trillion of money the central bank has pumped into the banking system known as reserves. Traditionally, when the Fed has raised interest rates, it has made small reductions in the supply of reserves in the banking system to push short-term bank borrowing costs. Because there are so many reserves now, it is exploring other options.

"A staff presentation outlined several approaches to raising short-term interest rates when it becomes appropriate," the minutes said. This included discussions of instruments called reverse repurchase agreements and a term deposit facility.

Fed officials agreed to continue testing these programs without committing to an approach. "Participants requested additional analysis from the staff and agreed that it would be helpful to continue to review these issues at upcoming meetings," the minutes said.

The Fed aired a variety of low-level concerns about the broader economy at the meeting. Severe winter weather slowed activity in the first quarter. Output appeared to be reviving, though "some participants remarked that it was too early to confirm that the bounceback in economic activity would put the economy on a path of sustained above-trend economic growth."

"A number of participants pointed to possible sources of downside risk to growth, including a persistent slowdown in the housing sector or potential international developments, such as a further slowing of growth in China or an increase in geopolitical tensions regarding Russia and Ukraine," the minutes added.

Weighing against those worries, a number of officials "noted that business contacts in many parts of the country were generally optimistic about economic prospects, with reports of increased sales of automobiles, higher production in the aerospace industry, and increased usage of industrial power; in addition, a couple of firms with a global presence reported a notable increase in demand from customers in Europe."

In Fed staff projections, the outlook for economic growth in the first half of the year was "somewhat slower" than at the previous meeting. But its medium-run projection was unchanged.

"The staff continued to project that real [gross domestic product] would expand at a faster pace over the next few years than it did last year," the minutes said.

"The faster pace of real GDP growth was expected to be supported by an easing in the restraint from changes in fiscal policy, increases in consumer and business confidence, further improvements in credit availability and financial conditions, and a pickup in the rate of foreign economic growth."

The staff inflation forecast wasn't changed.

[specuvestor]

And the not unexpected possible outcome:

July 3 (Straits Times) -- KUALA LUMPUR - Malaysian state investor Khazanah Nasional plans to take Malaysian Airline System (MAS) private as the first step in a major restructuring of the
loss-making airline following the disappearance of its Flight MH370, according to two people with direct knowledge of the matter.

A delisting would pave the way for Khazanah to revive the ailing carrier, possibly by selling off its profitable engineering, airport services or budget airline units, trimming its bloated payroll and installing a new management team.
The restructuring and potential sale of MAS is politically fraught due to heavy opposition to job losses from its powerful labour union, which has hampered previous revival plans, and its
status as Malaysia's national flag-carrier.
At MAS' current price of 21 sen per share, majority shareholder Khazanah would need to pay only RM1.05 billion (S$408 million) for the 30.6 per cent of shares it does not already own,
according to Reuters calculations.
Khazanah's board, chaired by Prime Minister Najib Razak, is expected to meet at the end of this month to discuss the plan,one of the people said, adding that an announcement would be made by the end of this year. The sources declined to be identified because of the sensitivity of the issue.

The state investor is working with CIMB Investment Bank on the restructuring, the sources added, but cautioned that the plan, and its details, are subject to change depending on the
ultimate decision by the government.

Khazanah said last month that it was considering all options and would unveil plans within six to 12 months to restructure the airline, which has been squeezed into three straight years of
losses by intense competition locally and on long-haul flights.

Hit by slumping ticket sales in the wake of the baffling disappearance of MH370 on March 8, the company turned in its worst quarterly performance in two years in the January-March
period and is currently burning through its operating cash. Its shares have fallen 16 per cent since the disappearance compared to a 2.8 per cent gain in the Kuala Lumpur Composite index.
The MAS chief executive said last week that the business needed to embrace "radical or sweeping" change to survive. Asked to comment on the privatisation plan yesterday, a Khazanah
official said the fund had nothing to add to its June statement.Reuters contacted the relevant officials at MAS and CIMB, who did not immediately respond to requests for comment.
Taking MAS private could enable Khazanah to restructure it with little interference from shareholders and the powerful airline union, analysts said.
Resistance to previous restructuring efforts by the union, which represents a workforce of around 20,000, has hampered the airline's efforts to cut costs and improve competitiveness in the
face of fast-growing low-cost carriers such as AirAsia and Indonesia's largest private airline, Lion Air.
The head of the MAS labour union, however, was recently quoted by local media as saying he would support a privatisation if a new leadership was brought in.

MAS would have a "break-up" value of RM4.15 billion, well above its current market value of RM3.4 billion, Maybank Research said in an April report. The airline's profitable units include
MAS Engineering, Airport Terminal Services and its budget airline unit Firefly.

Sources involved in discussions told Reuters in May that the airline and its key stakeholders were in talks with banks for a strategic overhaul that could include the partial sale of the
engineering unit and an upgrade of its ageing fleet.

Bankers said declaring MAS bankrupt was not a decision the government would likely favour as it could harm the airline's chances of selling off the profitable units. Analysts said the
airline is set to post another weak performance in April-June as it continues to struggle with flight cancellations, weak passenger yields and high overheads.

The failure of National Carriers is well known in the value investing circle as they are national "treasures" and high capex. Which is why it was quite surprising when Bill Miller starts turning positive on airlines. JAL will go through fire but National Carriers will seldom cease to exist come what may.

We now have a real life event happening for us to observe. No tickets needed but great learning session on how the real world works and the myriad of considerations besides simple PnL

Malaysian Air Falls Most Since 1998 Amid Bankruptcy Concerns
2014-05-19 02:33:43.488 GMT


By Choong En Han and Kyunghee Park
May 19 (Bloomberg) -- Malaysian Airline System Bhd., the
unprofitable national carrier that’s still searching for Flight
370, dropped the most since 1998 amid investor concern the
government may let the company fail.
The government should consider giving up its stake in the
airline, Sinar Harian newspaper reported, citing Malaysia’s
Public Accounts Committee Chairman Nur Jazlan Mohamed.
Bankruptcy may be an option to allow Malaysian Air to
restructure, the Wall Street Journal said last week, citing an
interview with Prime Minister Najib Razak.
“People believe that this time around, there would not be
a bailout like before,” said Mohshin Aziz, an analyst at
Malayan Banking Bhd. in Kuala Lumpur. “It may be heading”
toward bankruptcy, he said.
Malaysian Air fell 21.1 percent to a record low of 15 sen,
the biggest retreat since the Asian financial crisis. The
airline’s shares have dropped 63 percent over the last year,
compared with the 6.2 percent increase in the FTSE Bursa
Malaysia KLCI Index.
Government investment company Khazanah Nasional Bhd. owns a
69.4 percent stake in the airline, according to data compiled by
Bloomberg. Malaysian Air Chief Executive Officer Ahmad Jauhari
Yahya didn’t answer his mobile phone when called by Bloomberg
News for comment.

Additional Stress

The airline said last week the disappearance of Flight 370
has put additional stress on the company’s operations, forcing
it to reexamine more urgently its business plan after reporting
the biggest quarterly loss since 2011. It had a net loss of
443.4 million ringgit ($138 million) in the three months ended
March 31, compared with 278.8 million ringgit a year earlier.
Flight 370 vanished from civilian radars with 239
passengers and crew on March 8 on a flight from Kuala Lumpur to
Beijing. No physical trace of the aircraft has been found in
what has become the longest hunt in modern aviation history.
Malaysian Air had been struggling with increased
competition and higher costs even before the disappearance of
the jet as rivals such as AirAsia Bhd. flooded the region with
planes and drove down fares.
The Subang, Malaysia-based company has lost a total 4.57
billion ringgit since the start of 2011. The company missed its
target to be profitable last year as rising prices for items
including fuel, maintenance and financing wiped out revenue
gains, and pointed to an unfavorable foreign exchange rate
environment as an additional challenge this year.

[specuvestor]

Think this article is a good addition to what we have been discussing here:

http://www.telegraph.co.uk/finance/comme...n-end.html

Foreign reserves is highly related to trade balance, and when it comes to trade, there is a lot of reasons why access to foreign capital is important. In the AFC it was compounded by the fact that THB and IDR was pegged and corporates were borrowing heavily overseas to "arbitrage" the difference, but the government had to pay the bill. When crap hits the fan, there is little difference between private and govt foreign debt because it all gets netted off in the foreign reserves. Look at Argentina now and historically

And when enitities get too big to fail, the impact tends to be socialised because the bankruptcy itself will have a social impact ANYWAY. You may not believe this but there is NO DIFFERENCE between Temasek and Singapore govt; if Temasek defaults, you expect Temasek to sell Singtel majority to a 3rd party? The subtle difference to privatise Temasek does give it extra leverage on hair-cut negotiations. It's the same mentality of US govt and the GSEs... and doing pref shares in essence guranteeing the debt holders.

You can mess with the equity guys but not with the debt guys, unless u run out of choices.

As per my previous posts, there is great leverage on US$ being the trade currency and hence the de facto reserve currency. The US does care that foreigners buy their debt to keep as reserves, becuase US$ is the basis of the fiat cross currency system. Kissinger cared enough to effectively invent the LIBOR market for petro$ cycling

Since US$ is the defacto trade currency, China has no problem spending it. They would have a big problem if they say hold bitcoins since it is not legal tender everywhere If possible they would like to pay use up their USD to buy up commodities assets, which are usually priced in USD anyway, if not for the fact that other governments are aware of their national interest as well.

[Porkbelly]

Thanks Specuvestor, good article.

[greengiraffe]

The Fed's 'con' game could be up

Baker Philip Baker
559 words
14 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

As long as you're not on the wrong end of their quick-talking ways, everyone admires a good con artist.

We like him because he's cheeky, smart, bends the rules and often takes on the big boys at the top end of town.

The financial world has always had its cons. In the 19th century regional banks in the United States issued their own banknotes because at the time there was no official currency.

However, there was often a shortage of these notes so counterfeiters were quick to take advantage of that. Despite everyone knowing they diluted the real money supply, it also helped foster trade so it was tolerated, to a degree.

Con men exploit human characteristics such as greed, vanity, honesty, compassion, credulity, and naivety. In the early 20th century the con artist moved into the sharemarket with so called "inside information" on stocks that encouraged would-be investors to speculate.

It was a great game for a roaring economy and a system that had always thrived by putting up with a bit of fraud as long as it helped liquidity.

Some might say central banking is also a con, or a confidence game, right now. The US Federal Reserve is playing a confidence game with investors, and just like any con, what is vital for it to work is to have complete and utter good faith in the con artist.

Confidence in business and finance is often that intangible, and unknown, factor. For sure, investors can never be entirely sure about the future and detail of any forecasts.

But there does seem to be growing evidence of a decline in confidence in investment markets. What happens if investors lose interest in the "narrative of the central banks"? What happens if they ignore them?

Since the global financial crisis there have been so many rallies in the sharemarket based on what the Fed has done and will do. Some didn't last a second day but after three programs of quantitative easing and a balance sheet closer to $US4 trillion investors took comfort the bank would always do something. Same with the European Central Bank. But they too are starting to underwhelm. After firing the whatever-it-takes bazooka the ECB are now not so gung-ho and investors are losing trust.

The Fed's program is all coming to an end and investors are losing their confidence. It's got to a stage that investors could get more concerned about a potential QE4 program.

Rather than welcome it, the current environment would say the other three haven't worked, why should this one? Business also needs confidence if they are going to get their "animal spirits" back.

The real problem is that for the past 20 years or so central bankers have met each financial catastrophe with lower interest rates. When they got to zero, they pulled out quantitative easing. That game gave short-term relief but had long-term instability in the background.

Now it's with us. Investors should be asking if prices have fallen enough to get cash on the sidelines invested. What risks haven't they thought about? Where are the future cash flows coming from? How much am I paying and how leveraged are they?


Fairfax Media Management Pty Limited

Document AFNR000020141013eaae0003x